d. Total Assets Turnover
This is a financial ratio that measures the efficiency of company’s use of its assets in generating sales income to the company. If the total assets turnover
is high compared to other firms. It can be indicate that you are using not too many assets to generate sales. Yet, if the firms have a low total assets turnover.
It indicate that capital is invested in too many assets in relation to what they need.
2.1.4 The Relationship between Initial Public Offerings and Operating
Performance Operating performance ratios can determine the operating performance of
the company after the IPO. Basically, IPO is conducted to get additional funds from the public. Going public typically leads to a significant change in the
company’s ownership structure. The reduction in management ownership level is a result of going public likely to lead to the agency problem described by Jensen
and Meckling 1976. Jain and Kini 1994 suggest that firm tend to use opportunity as well as the market timing hypotheses making firm performance
tend to explain decline after the offering.
2.2 Previous Research
Some researches on the performance of firms after making IPO are found in the literature. Jain and Kini 1994 investigate 682 firms making IPO in the period
1976-1988 in New York Stock Exchange to determine whether the company making IPO have decline in operating performance in a few years after the IPO.
Jain and Kini use five variables as measures operating performance, namely operating return on assets, operating cash flow to total assets, sales growth, assets
turnover and capital expenditures. The result found that there is decreasing of operating performance after making IPO. They said that decreasing of operating
performance as a result management’s efforts to show good financial performance in the period before the IPO. They suspect that the practice of earnings
management in the period before the IPO is one cause of the inability of the company to maintain operating performance after the IPO. It means the
management company use accounting policies to increase earning reported as an effort to demonstrate to investor that the company has good financial
performance. Kurtaran and Er 2008 investigate 205 firms went public in the period
1999-2000 in Istanbul Stock Exchange. The findings for the operating performances in this research were tested with respect to both the post-issue
management ownership and the underpricing level. They use six variables as measures of operating performance, such as operating return on assets, operating
profit deflated by total assets at the end of fiscal year, profit margin, equity capital turnover, asset turnover and operating cash flow to total assets. Using a number of
operating performance measures, they compared the performances for three years after the IPO relative to pre-IPO year. They found some significant declines in the
post-issue operating performances. Overall, they come up with a result that the Turkish IPO firms did not sustain their pre-IPO performances. There are some
increases in sales numbers and capital expenditures number after the IPO year in comparison to pre-IPO level while there are some decreases in profitability level
after the IPO. However, investors appear to value firms going public based on their pre-IPO performance level. While in fact, the pre-IPO performance levels
can not formed expectations to investor. Gumanti and Alkaf 2011 investigate 85 firms making IPO and SEO in the
period 1990-2006 in Indonesia Stock Exchange. This objective research is to test the signaling theory, whether underpricing can give signal on the company
making SEO. The measures of this research are using two standards, such as raw initial return and market adjusted initial return. In consistently, the results showed
that on average of IPO firms is underpricing as big as 22.35, while at SEO, the level of underpricing is 13.35. The underpricing level during IPO and SEO are
not statistically different. The company with the underpricing higher level during IPO will lower as much as the company during SEO. Overall, the results support
the signaling theory has not been successful in the IPO. The studies that focus on the operating performance of IPO, there are Jain
and Kini 1994, Kurtaran and Er 2008, Gumanti and Alkaf 2011 amongst
other generally found that there is a declining in the operating performance in the period after the company’s IPO. The company’s inability to maintain the
operating performance achieved in the period before the IPO is likely caused by the actions that lead to improved profitability.
2.3 Conceptual Framework
